Javier Millay’s plan for fiscal adjustment will correct economic imbalances in Argentina economy

For Ortiz, Argentina’s problem is more of a fiscal problem than inflation, and he likens it to what happened in Peru in the 1980s, when the country became over-indebted and spent beyond its collection capacity, which created hyperinflation. Currency depreciation.

Meanwhile, Berea pointed out that what is happening in Argentina makes us think of some parallels to what was done in Peru in the early 90s. Funding from Central Bank.

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Banco Central

Axes of the aforementioned plan include closing Argentina’s central bank, solving the Lelic problem, and dollarization of the economy. All this to reduce annual inflation, which today stands at 142.7%.

We should know that Leliq, or Central Bank Liquidity Letter, are short-term payment promises made to private banks by the Central Bank of the Republic of Argentina (BCRA). It only happens between financial institutions.

So, Ortiz said, what Milei wants to do is end the central bank, but make the value of the bank a reality by paying off those loans. However, the first thing you need to do is find a way to pay off those obligations that BCRA holds.

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“During the campaign [estuvo] His speech, which was highly critical of Argentina’s monetary policy, suggested that these completely worthless assets were somehow driving up the value of the peso; That is, BCRA has issued Lelik against the loan created which has no value. If we make Lilik true, we treat this asset as having no value, then the pesos are worth nothing.Ortiz explained what Miley was saying.

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With this, what the president-elect has to do is choose between two scenarios: First, he can choose not to recognize the value of the mille peso, which will significantly raise the exchange rate and cause people to lose their losses. Wealth in support of the government. Miley was always against this.

In the second scenario, Miley can identify a higher value for pesos; But he owes a lot to the Argentine people. In that case there was no loss of wealth to the people, but rather to the wealth of the Argentine government; That is, approve more loans. “That’s something Millay was against, because in his ideology, he thinks that debt is an immoral thing because you’re putting a chain of debt on future people.”he added.

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Dollarization

On dollarization, Beria felt there were better options. “In the 90s, Peru opted for an autonomous central bank, with important institutional and technological development and price stability and the goal of making things work well. “Free monetary policy is better than no monetary policy at all.”I notice.

Argentina’s case, however, is difficult because credibility has been eroded as the only way the president-elect has found is to eliminate the central bank.

For Ortiz, the “advantage” of dollarization is that it is more reliable. “Somehow the BCRA will disappear and it will no longer be able to generate inflation and release resources. In some sense, it means that credibility has an immediate impact. “For people to believe that inflation is going to come down, it takes a long-term effort to build confidence, as opposed to stabilizing with a flexible exchange rate like in Peru.”He explained.

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However, with dollarization, monetary policy is lost and becomes the responsibility of the United States. The problem, Ortiz said, is that sometimes prices in the economy are capricious and don’t react to certain events.

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For the UP expert, the key is fiscal reform, access to resources through privatization — the only way to access funds — and maintaining impeccable fiscal discipline if we want to operate under a total dollarization program.

“Determining where Milei sets the exchange rate will be political in some way. Neither way — by authorizing more debt, but with a serious and critical fiscal plan or strong devaluation by buying back pesos — will be pleasant to anyone.Punished.

Finally, if Milei moderates and maintains the orientation of market policies, Argentina has great potential to reduce its inflation.

“In Peru we went through it in the early 90s and it cost a lot of vulnerable people. But we managed to overcome it and we saw the benefits after that.said.

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